The Kremlin sounded the alarm on its deteriorating finances earlier this year, just as its war on Ukraine pivoted dramatically against Russian forces.
The ministry also put war-related overspending at 4 trillion rubles in 2027 and 2028, while asking the cabinet to freeze trillions in non-defense outlays in the coming years.
The projected explosion in war costs comes as Russia’s budget deficit was quickly diving deeper into negative territory. The Kremlin had earlier seen a deficit of 3.8 trillion rubles for all of 2026, but it’s already 5.9 trillion rubles in the first four months of the year, according to the FT.
The deficit outlook has worsened so much that the finance ministry asked government agencies to cut non-essential spending by 10%. Economic growth is also stagnating, with GDP expected to tick up just 0.4% this year, down from a previous view for 1.3%.
As Russia’s finances go further into the red, the government has been forced to tap reserves in its wealth fund. But that is rapidly dwindling too. Meanwhile, high war-related inflation has kept interest rates high and is stoking fears of a debt crisis among companies and consumers.
Since then, Ukrainian drone attacks have hammered Russian oil infrastructure, further eroding energy revenues, and more recently have disrupted supply lines that connect Russia with occupied territories.
That’s frozen Russian troops in place with Ukraine even making some gains now. Russian casualties also have soared to more than 30,000 a month, draining the Kremlin’s financial resources even more as bigger incentives must be offered to recruit enough replacements and pay out death benefits.
The prevalence of drone warfare had previously limited the ability of either side to make much headway. But Ukraine now enjoys “tactical drone supremacy,” according to the think tank.
In fact, for the first time since 2023, Ukraine is starting to regain more ground than it is losing, ISW said, seizing the initiative with new tactics and putting Russia on the back foot.
There’s no single explanation for recent successes, the report noted, citing improved operational planning, new battlefield-management software, and different counterattack techniques.
“Ukrainian forces are achieving temporary tactical drone overmatch in some frontline sectors, which is slowing Russian offensive operations by degrading the effectiveness of Russian shaping operations,” ISW said.
